Correlation Between Aeon Co and Shoprite Holdings

Can any of the company-specific risk be diversified away by investing in both Aeon Co and Shoprite Holdings at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aeon Co and Shoprite Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aeon Co Ltd and Shoprite Holdings Ltd, you can compare the effects of market volatilities on Aeon Co and Shoprite Holdings and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aeon Co with a short position of Shoprite Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeon Co and Shoprite Holdings.

Diversification Opportunities for Aeon Co and Shoprite Holdings

0.49

Correlation Coefficient

Aeon Co  Shoprite Holdings

Very weak diversification

The 3 months correlation between Aeon and Shoprite is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Aeon Co Ltd and Shoprite Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Aeon Co is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aeon Co Ltd are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Aeon Co i.e., Aeon Co and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Aeon Co and Shoprite Holdings

Assuming the 90 days horizon Aeon Co Ltd is expected to under-perform the Shoprite Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Aeon Co Ltd is 1.17 times less risky than Shoprite Holdings. The pink sheet trades about -0.12 of its potential returns per unit of risk. The Shoprite Holdings Ltd is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,666  in Shoprite Holdings Ltd on October 5, 2024 and sell it today you would lose (91.00) from holding Shoprite Holdings Ltd or give up 5.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Aeon Co Ltd  vs.  Shoprite Holdings Ltd

Aeon Co

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Co Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shoprite Holdings Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Shoprite Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aeon Co and Shoprite Holdings

The main advantage of trading using opposite Aeon Co and Shoprite Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aeon Co position performs unexpectedly, Shoprite Holdings can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shoprite Holdings will offset losses from the drop in Shoprite Holdings' long position.

The idea behind Aeon Co Ltd and Shoprite Holdings Ltd pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Valuation module to check real value of public entities based on technical and fundamental data.